Of Mooncakes and Multinational Business Goals






Liz Garone
Special to Law.com
December 20, 2005


Mooncakes have long been a quintessential gift in Asia. Each autumn, during the Moon Festival, Chinese businesses offer the sweet pastries to local clients, among them chip giant Intel Corp.

So, what happens when the cakes are refused by receptionists intent on adhering to company rules regarding monetary gifts?

"It is considered very, very rude to reject mooncake from your supplier," says Bruce Sewell, general counsel and senior vice president at Intel.

But rejection is just what happened a couple of years ago when his legal department took company policy a little too literally.

Sewell chalks up the incident as one of the cultural mix-ups the firm has experienced in its decade and a half in Asia. Whether old hands or newcomers to the area, multinational corporations' legal departments often learn through trial and error the nuances of this exploding region and what it takes to smoothly navigate the unfamiliar terrain.

TECH COMPANIES LOOK EAST

Intel is far from alone in exploring the region. In recent years, manufacturing companies of all types -- technology in particular -- have been leading the pack in the rush to Asia, especially China, according to Steven Ganster, the managing director of Technomic Asia, a market strategy firm based in Shanghai, and author of "The China Ready Company." While it used to be almost exclusively Fortune 500 and 1000 companies making the shift, these days it is also small to medium-size enterprises that feel "compelled to respond to the China opportunity -- and threat -- if they don't come," says Ganster.

FACING THE GEOGRAPHIC HURDLE

The Asia-Pacific region's most obvious challenge for the Santa Clara, Calif.-based Sewell has been the sheer geographic area that his staff needs to cover. Sewell has about 30 attorneys stationed in six countries: Australia, China, India, Japan, Malaysia and the Philippines, with the majority in China and Japan.

"I want my attorneys to be able to get to their clients for a meeting on a daily basis if they need to," Sewell says. In reality, an attorney can spend 17 or 18 hours in transit for a three-hour client meeting. "Basically, it takes you three days to do a one-day meeting. This just makes it prohibitively difficult to support clients the way I want," he says.

To remedy the situation, the Intel GC has decided to split the Asia-Pacific region between a northern team of attorneys based in Singapore, and a southern team based in Beijing or Shanghai.

GO LOCAL? YES, NO AND BOTH OF THE ABOVE

As other companies expand their Asia operations, they, too, will need to re-examine the positioning of their legal departments. For a behemoth like Intel -- or General Electric, which has some 120 attorneys in Asia, with more than 30 in Greater China alone -- that might not sound too daunting, but what about smaller companies just launching their Asia presence?

There are three options for legal coverage, says Dr. Ashok Bardhan, a senior research associate at University of California, Berkeley's Haas School of Business and co-author of "Globalization and High-Tech Industry: California, US and Beyond." A company can send over staff on an as-needed basis, set up an in-house department on site, or use a local firm. "Increasingly, you'll be seeing all three of these versions," he says, adding: "In Asia, there has been a huge increase in legal work that has resulted in the need to come up with new ways and means of setting up legal departments."

For New York City-based Intrasphere Technologies Inc., the choice was simple. The technology consulting company picked a local firm to represent it on an as-needed basis when it opened offices in India in 2003 -- a decision that Intrasphere co-founder Samuel Goldman says was based on a combination of "economics and pragmatism."

A 'RUSH' BY U.S. LAW FIRMS

In the case of outside counsel, it's no longer just local entities vying for new arrivals' Asia business. In the two hottest countries -- China and India -- Esther Kepplinger, Wilson Sonsini Goodrich & Rosati's director of patent operations, says there has been a "rush" by large U.S. law firms to get a foot in the door.

Among the contenders: DLA Piper Rudnick Gray Cary recently received approval by China's Ministry of Justice to open another office in that country -- this time, in Beijing. And Orrick, Herrington & Sutcliffe opened a Hong Kong office in November. Wilson Sonsini is scheduled to open offices in Shanghai in the spring of 2006.

LEGAL RESTRICTIONS, CHALLENGES AND CHANGE

Although more and more U.S. law firms are setting their sights on China, foreign lawyers are still prohibited from practicing Chinese law -- as are Chinese nationals if they work for foreign firms. That restriction applies even for Chinese citizens who have gone to law school in China and passed the Chinese bar. "You just can't practice Chinese law, period," says Wilson Sonsini partner Carmen Chang, who will head up the firm's new Shanghai location.

Another challenge in a fast-growing economy like China's is keeping pace with evolving laws, says Chang. "A lot of times, the laws haven't caught up with the changing circumstances. So, you have regulators trying to catch up. Often times, there will be things you want to do, and these regulators will tell you, 'We don't know if you can,'" she says.

Legal challenges unique to China could fill a volume, says Stanley Lubman, a China scholar at the University of California, Berkeley's Boalt Hall and author of "Bird in a Cage: Legal Reform in China after Mao."

"As new areas are created, such as venture capital, the legal uncertainty that has marked China since 1979 will continue to appear. Institutions for dispute settlement will continue to be unsatisfactory. The courts continue to need major reforms, both in the education and professionalization of judges and in the manner in which they operate," says Lubman.

Just as China's economy and regulatory system change, so do the legal departments of U.S. companies doing business there.

Intel's Sewell says there isn't a specific tipping point that tells him it's time to set up a legal department. "It's not an exact science. It's much more of a gut feel," he says.

Language differences can be a crucial part of that equation. English has become the de facto standard for attorneys in Europe, says Sewell - but the situation in Asia is often more complex. "If you're trying to negotiate a Vietnamese deal with a Mandarin speaker, or if you're trying to source Chinese support out of Tokyo, it's much more difficult," he says.

In Intel's case, the best way to solve this problem has been to hire locally whenever feasible, says Sewell. "We actually prefer a model which relies heavily on local hires with some central U.S. management structure. To the extent that we can, we would like to staff it with local hires and then train them to a standard that we would find acceptable. That's our preferred method."

For more senior management, that training includes spending time in the United States, working closely with U.S. associates. More junior-level staff receives training in country.

Sewell says the company's international training is constantly being revamped, especially after incidents like the one with the mooncakes. "We have had to recognize things like that and come up with a much more culturally sensitive set of rules and do more training. People who are not English speakers and are not as culturally familiar with what we are intending by a rule tend to read the rule very literally."

When it comes to recruiting local hires, a multipronged approach has worked best for Intel. One successful tactic has been to look to the law firms with which the company works. "When a junior partner or senior associate is looking for a change in lifestyle and looking for a change of pace, we are often able to convince them that we are a good place to be. It's a lot of word of mouth and a lot of working the relationships we have with the law firms," says Sewell.

"In general," he adds, "law firms are quite happy with this relationship, because it gives them a better link into Intel as a client. There are people who have grown up in that particular law firm now working at Intel."

Stephen Maloy, GE's general counsel for the Asia Pacific region, says most companies start their Asia operations with a lawyer from the head office. "At that point, company-specific knowledge is most important."

But GE also takes a local approach. Of the 120-plus attorneys in the region, only a handful are expatriates, among them Maloy. "Local language capability and knowledge of local laws rapidly become very important," he says.

Through a visiting lawyer program Maloy started in 1989, local attorneys work alongside GE attorneys for six months to one year before returning to their firms. "This allowed us to build a stronger relationship with the local firm and one of the associates in particular, while at the same time the associate had a chance to gain company-specific knowledge about us," says Maloy. Of 250 lawyers who have passed through the program, 10 have chosen to move from outside firms to in-house positions at GE.

So, have mooncake tastings become part of Intel's own in-house training? Not yet. Sewell has yet to sample the delicacy.

Liz Garone is a freelance writer. She received her Master's degree from Columbia University's Graduate School of Journalism and has written for The Washington Post and Business Week.

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